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Can Oil Diplomacy Reschedule US- Venezuela Relations?

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Ever since it was reported the recent visit of 2 White House officials to Caracas as the first talks in recent years amid the protracted strained relations between the White House and the Bolivarian Revolution and being allegedly these initial talks centered on the hypothetical return of Venezuelan oil to the US as the Biden administration is seeking new sources of oil imports after imposing a ban on russian oil imports after the start of the invasion against Ukraine, the likelihood for this to happen faces different operational, financial and political problems to reach a conclusive lifting of sanctions against Venezuelan oil sector.

For Venezuela to become an alternative to replace the recently banned russian oil imports to the US by the Biden administration after CHEVRON got an approval to start trading and shipping Venezuelan oil it won’t likely be an easy task considering the still existing operational and financial problems and hurdles experiencing the state oil company Petroleos de Venezuela Sociedad Anonima (PDVSA) unable to significantly lift its long decayed oil production, currently averaging between 600 and 700 kbd based on last reports of OPEC.

Meanwhile also the joint ventures where CHEVRON has been a partner for decades has been significantly impacted by years of mismanagement, corruption, nepotism, politicization, low wages for workers, aside from refining problems, altogether making unlikely at least in the short term for PDVSA to add extra barrels from whats currently producing, say at least around 200 to 300 kbd, even with the slightly recent uptick of its production but without reaching a stable upward trend which could translate into a significant recovery of its output.

In this sense, for Washington to be able to return to Venezuelan oil landscape translated in the presence of large and minor oil companies such as CONOCO, EXXON and others (this considering the different nationalization of assets under Chavez period of both EXXON and CONOCO which were subject of legal international processes and demands against the Venezuelan state and PDVSA) aside from the already existing presence of CHEVRON, the Biden administration politically and strategically speaking would likely move ahead with demands as a sort of a tradeoff like political concessions from Caracas such as the release of political prisoners, the holding of free presidential elections likely at the end of the Maduro term, the issue of CITGO and its legal status being part of PDVSA but US based and so far in control of Juan Guaido appointees and how the issue of recognition of Guaido by Washington will play out in these negotiations in exchange for a much needed lifting of sanctions against PDVSA and potential new fresh investments by US oil companies that could be translated into more barrels exported to US refineries.

At the same time in the context of this first exploratory talks between Caracas and Washington about which there has been growing speculations despite the still incipient status of it, the issue of the presence of russian and Chinese companies in deals with PDVSA could also represent a hurdle and a bargaining chip for Washington in trying to negotiate a return of oil companies in exchange for a total lifting of sanctions possibly demanding either the downsizing of their operations (there’s a consortium that assumed all operations after the exit of different russian companies under sanctions, called ROSZARUBEZHNEFT controlling around 100.000 barrels of production in joint ventures with PDVSA) or the exit of these russian and Chinese companies.

Following this last idea, also considering as well the fact that different Venezuelan official entities such as PDVSA allegedly have different accounts in russian banks, now under massive sanctions by Washington after the invasion of Ukraine by Moscow, while taking into account the different mechanisms under which these potential new joint ventures will work, the intensity of production altogether under still existing critical conditions of public services, power outages and rationing in onshore and offshore operational areas, recurrent thefts of oil equipments and materials in remote areas, all this impacting heavily in the dwindling of oil output of Venezuela, running way before the imposing of sanctions by the former Trump administration in 2018.

On this regard as Washington is seeking ways to replace the banned oil from Russia, for Venezuela to replace it (an irony when ever since Venezuelan oil exports to the US were sanctions by the Trump administration, Russia gradually fill that void left by its key ally in South America as it lift its oil and products exports in recent years), considering that PDVSA used to export around 1 MMBPD to US refineries and collapsing as a consequence of myriads of problems facing the hydrocarbon sector and current exports of Venezuela are under contracts tied to deals with China, significant financial investments are necessary to add new non compromised production, while also considering the options of ever more emerging players in oil production like Colombia and Guyana, which could even backtrack this topic of reconsidering Venezuela as a supplier of oil if Caracas gets too demanding and considering  the significant damages for years to PDVSA’s oil production in the light of the urgency of needs to replace the void left by the banning of russian oil to the US.

In this sense, as Washington slammed against OPEC+ recent decision calling it a siding with Moscow and considering the long alliance Caracas Moscow, this could represent a strategic dilemma for Venezuela on which path it could take in order to finally move ahead with recovering its very much needed oil and gas sector amid the current geopolitical landscape with the war in Ukraine and the window for a new nuclear deal with the other ally of Caracas, Iran, closed for now.

Overall, the potential for a return of Venezuelan oil to the US market will depend primarily on the real existing operational capacities on the ground of PDVSA and the real willingness by the White House and US oil companies to move ahead with significant investments to quickly add more production without any hurdles in new wells, recovering production of some already decaying wells and how ultimately the geopolitical and political dynamics between Washington and Caracas will play out along with regards to how the public opinion in both countries will influence on these initial renewed talks, as there is still too much speculation about this issue.






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